Exam 11: Fiscal Policy

Expansionary and contractionary gaps are automatically eliminated by shifts in aggregate demand.

A temporary tax cut is not likely to be effective in stimulating aggregate demand if:

The U.S.federal income tax is progressive,which means that _____.

During the 1970s,demand-management policy:

Classical economists believed that the economy automatically moves toward equilibrium at full employment.

The simple spending multiplier understates the amount by which output changes.

The tax cut of 1964 (proposed by President Kennedy):

Suppose the government reduces its budget deficit at the same time that energy prices rise sharply.Which of the following is most likely to happen?

A decrease in net taxes:

It has been estimated that the marginal propensity to consume out of tax rebate money is around 1/3.

A decrease in net taxes:

Suppose the government expenditure increases by $200 and the simple spending multiplier equals 5.The final increase in output will be:

If policy makers estimate the natural rate of unemployment incorrectly,_____.

Government transfer payments are a good example of an automatic stabilizer.

The only way by which government can affect aggregate demand is through changes in its own purchases.

The effect of automatic stabilizers on the business cycle is to:

If the economy is already at its potential output,then the spending multiplier is:

Growing capital spending and privatization were two of the factors due to which the U.S.economy experienced a strong recovery in 1994.

Figure 11.1 shows the relationship between the price level and the real GDP.Which of the following sets of policies would unambiguously move the economy to full employment?

Because of automatic stabilizers,disposable income varies proportionately less than real GDP during periods of economic fluctuations.